Attached files
file | filename |
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EX-32.1 - EX-32.1 - BANK OF GRANITE CORP | g25226exv32w1.htm |
EX-31.2 - EX-31.2 - BANK OF GRANITE CORP | g25226exv31w2.htm |
EX-31.1 - EX-31.1 - BANK OF GRANITE CORP | g25226exv31w1.htm |
EX-32.2 - EX-32.2 - BANK OF GRANITE CORP | g25226exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended September 30, 2010
OR
o | Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For
the transition period from _______________ to _______________
Commission file number 0-15956
Bank of Granite Corporation
(Exact name of registrant as specified in its charter)
Delaware | 56-1550545 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
Post Office Box 128, Granite Falls, N.C. | 28630 | |
(Address of principal executive offices) | (Zip Code) |
(828) 496-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):
Large Accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Common stock, $1.00 par value
15,454,641 shares outstanding as of October 31, 2010
15,454,641 shares outstanding as of October 31, 2010
Index
Begins | ||||||||
on Page | ||||||||
Part I Financial Information |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
18 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
28 | ||||||||
29 | ||||||||
30 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
Item 1. Financial Statements
Bank of Granite Corporation
Condensed Consolidated Balance Sheets
(In thousands except per share data)
Condensed Consolidated Balance Sheets
(In thousands except per share data)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | (Note 1) | |||||||
Assets: |
||||||||
Cash and cash equivalents: |
||||||||
Cash and due from banks |
$ | 46,574 | $ | 71,611 | ||||
Interest-bearing deposits |
2,938 | 1,763 | ||||||
Total cash and cash equivalents |
49,512 | 73,374 | ||||||
Investment securities: |
||||||||
Available for sale, at fair value |
277,570 | 190,921 | ||||||
Loans |
606,359 | 775,019 | ||||||
Allowance for loan losses |
(29,952 | ) | (27,837 | ) | ||||
Net loans |
576,407 | 747,182 | ||||||
Premises and equipment, net |
14,466 | 15,556 | ||||||
Accrued interest receivable |
3,553 | 3,917 | ||||||
Investment in bank owned life insurance |
4,261 | 4,106 | ||||||
Other assets |
21,321 | 25,028 | ||||||
Total assets |
$ | 947,090 | $ | 1,060,084 | ||||
Liabilities and Stockholders Equity: |
||||||||
Deposits: |
||||||||
Interest-bearing |
$ | 791,016 | $ | 856,932 | ||||
Noninterest-bearing |
98,152 | 109,673 | ||||||
Total deposits |
889,168 | 966,605 | ||||||
Overnight and short-term borrowings |
21,000 | 20,000 | ||||||
Long-term borrowings |
3,000 | 20,000 | ||||||
Accrued interest payable |
1,316 | 1,701 | ||||||
Other liabilities |
4,398 | 4,692 | ||||||
Total liabilities |
918,882 | 1,012,998 | ||||||
Stockholders equity: |
||||||||
Common
stock, $1.00 par value per share Authorized - 25,000 shares Issued - 18,981 shares in 2010 and 2009 Outstanding - 15,454 shares in 2010 and 2009 |
18,981 | 18,981 | ||||||
Capital surplus |
30,195 | 30,195 | ||||||
Retained earnings |
31,137 | 52,308 | ||||||
Accumulated other comprehensive loss,
net of deferred income taxes |
(253 | ) | (2,546 | ) | ||||
Less: Cost of common stock in treasury;
3,527 shares in 2010 and 2009 |
(51,852 | ) | (51,852 | ) | ||||
Total stockholders equity |
28,208 | 47,086 | ||||||
Total liabilities and stockholders equity |
$ | 947,090 | $ | 1,060,084 | ||||
See notes to condensed consolidated financial statements.
3
Table of Contents
Bank of Granite Corporation
Condensed Consolidated Statements of Income (Loss)
(Unaudited in thousands except per share data)
Condensed Consolidated Statements of Income (Loss)
(Unaudited in thousands except per share data)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest income: |
||||||||||||||||
Interest and fees from loans |
$ | 8,566 | $ | 11,811 | $ | 28,054 | $ | 37,098 | ||||||||
Federal funds sold |
| | | 8 | ||||||||||||
Interest-bearing deposits |
39 | 18 | 101 | 41 | ||||||||||||
Investments: |
||||||||||||||||
U.S. Treasury |
| 1 | | 18 | ||||||||||||
U.S. Government agencies |
2,172 | 1,247 | 6,303 | 2,378 | ||||||||||||
States and political subdivisions |
| | | 364 | ||||||||||||
Other |
9 | 59 | 54 | 309 | ||||||||||||
Total interest income |
10,786 | 13,136 | 34,512 | 40,216 | ||||||||||||
Interest expense: |
||||||||||||||||
Time deposits of $100 or more |
1,266 | 1,555 | 3,984 | 5,207 | ||||||||||||
Other time and savings deposits |
1,875 | 3,077 | 6,063 | 10,619 | ||||||||||||
Overnight and short-term borrowings |
171 | 129 | 446 | 580 | ||||||||||||
Long-term borrowings |
41 | 180 | 242 | 588 | ||||||||||||
Total interest expense |
3,353 | 4,941 | 10,735 | 16,994 | ||||||||||||
Net interest income |
7,433 | 8,195 | 23,777 | 23,222 | ||||||||||||
Provision for loan losses |
7,321 | 4,760 | 27,924 | 12,863 | ||||||||||||
Net interest income (loss) after
provision for loan losses |
112 | 3,435 | (4,147 | ) | 10,359 | |||||||||||
Other income: |
||||||||||||||||
Service charges on deposit accounts |
1,162 | 1,439 | 3,707 | 4,031 | ||||||||||||
Other service fees and commissions |
60 | 119 | 232 | 351 | ||||||||||||
Securities gains (losses) |
1,747 | (34 | ) | 1,982 | 985 | |||||||||||
Other-than-temporary impairment losses |
| | | (996 | ) | |||||||||||
Other |
355 | 635 | 982 | 2,575 | ||||||||||||
Total other income |
3,324 | 2,159 | 6,903 | 6,946 | ||||||||||||
Other expenses: |
||||||||||||||||
Salaries and wages |
2,078 | 3,065 | 6,478 | 11,286 | ||||||||||||
Employee benefits |
421 | 798 | 1,219 | 2,665 | ||||||||||||
Equipment and occupancy expense, net |
855 | 1,055 | 2,705 | 3,322 | ||||||||||||
FDIC assessments |
1,156 | 500 | 3,518 | 2,879 | ||||||||||||
Other real estate owned |
1,377 | 1,770 | 5,048 | 3,095 | ||||||||||||
Other |
1,859 | 2,136 | 5,749 | 6,534 | ||||||||||||
Total other expenses |
7,746 | 9,324 | 24,717 | 29,781 | ||||||||||||
Loss before income tax benefit |
(4,310 | ) | (3,730 | ) | (21,961 | ) | (12,476 | ) | ||||||||
Income tax benefit |
| | (790 | ) | | |||||||||||
Net loss |
$ | (4,310 | ) | $ | (3,730 | ) | $ | (21,171 | ) | $ | (12,476 | ) | ||||
Per share amounts: |
||||||||||||||||
Net loss basic and diluted |
$ | (0.28 | ) | $ | (0.24 | ) | $ | (1.37 | ) | $ | (0.81 | ) |
See notes to condensed consolidated financial statements.
4
Table of Contents
Bank of Granite Corporation
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited in thousands)
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited in thousands)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (4,310 | ) | $ | (3,730 | ) | $ | (21,171 | ) | $ | (12,476 | ) | ||||
Items of other comprehensive
loss: |
||||||||||||||||
Items of other comprehensive
income (loss), before tax: |
||||||||||||||||
Change in unrealized gains (losses) on
securities available for sale |
(5,032 | ) | 1,469 | 1,980 | (185 | ) | ||||||||||
Reclassification adjustment for
available for sale securities gains
included in net income |
1,747 | 34 | 1,982 | 493 | ||||||||||||
Prior service cost and net actuarial loss SERP |
| 41 | | 124 | ||||||||||||
Other comprehensive
income (loss), before tax |
(3,285 | ) | 1,544 | 3,962 | 432 | |||||||||||
Change in deferred income
taxes related to change in
unrealized gains or losses on
securities available for sale |
1,313 | (593 | ) | (1,669 | ) | (119 | ) | |||||||||
Change in deferred income
taxes related to prior service cost
and net actuarial loss SERP |
| (16 | ) | | (58 | ) | ||||||||||
Items of other comprehensive
income (loss), net of tax |
(1,972 | ) | 935 | 2,293 | 255 | |||||||||||
Comprehensive loss |
$ | (6,282 | ) | $ | (2,795 | ) | $ | (18,878 | ) | $ | (12,221 | ) | ||||
See notes to condensed consolidated financial statements.
5
Table of Contents
Bank of Granite Corporation
Condensed Consolidated Statements of Changes in Stockholders Equity
(Unaudited in thousands except per share data)
Condensed Consolidated Statements of Changes in Stockholders Equity
(Unaudited in thousands except per share data)
Nine Months | ||||||||
Ended September 30, | ||||||||
2010 | 2009 | |||||||
Common stock, $1.00 par value per share |
||||||||
At beginning of period |
$ | 18,981 | $ | 18,981 | ||||
At end of period |
18,981 | 18,981 | ||||||
Capital surplus |
||||||||
At beginning of period |
30,195 | 30,190 | ||||||
Stock-based compensation expense |
| 5 | ||||||
At end of period |
30,195 | 30,195 | ||||||
Retained earnings |
||||||||
At beginning of period |
52,308 | 77,928 | ||||||
Net loss |
(21,171 | ) | (12,476 | ) | ||||
At end of period |
31,137 | 65,452 | ||||||
Accumulated other comprehensive loss,
net of deferred income taxes |
||||||||
At beginning of period |
(2,546 | ) | (1,077 | ) | ||||
Net change in unrealized gains or losses on securities
available for sale, net of deferred income taxes |
2,293 | 189 | ||||||
Net change in prior service cost and net actuarial
loss SERP, net of deferred income taxes |
| 66 | ||||||
At end of period |
(253 | ) | (822 | ) | ||||
Cost of common stock in treasury |
||||||||
At beginning of period |
(51,852 | ) | (51,852 | ) | ||||
At end of period |
(51,852 | ) | (51,852 | ) | ||||
Total stockholders equity |
$ | 28,208 | $ | 61,954 | ||||
See notes to condensed consolidated financial statements.
6
Table of Contents
Bank of Granite Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)
Nine Months | ||||||||
Ended September 30, | ||||||||
2010 | 2009 | |||||||
Increase (decrease) in cash & cash equivalents: |
||||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (21,171 | ) | $ | (12,476 | ) | ||
Adjustments to reconcile net loss to net cash
provided by operating activities: |
||||||||
Depreciation |
1,080 | 1,357 | ||||||
Provision for loan losses |
27,924 | 12,863 | ||||||
Investment security premium amortization, net |
944 | 788 | ||||||
Acquisition premium amortization, net |
| 19 | ||||||
Deferred income taxes |
(89 | ) | (78 | ) | ||||
Gains on sales or calls of securities available for sale |
(1,982 | ) | (503 | ) | ||||
Gains on sales or calls of securities held to maturity |
| (482 | ) | |||||
Impairment losses on securities |
| 996 | ||||||
Originations of loans held for sale |
| (82,177 | ) | |||||
Proceeds from loans held for sale |
| 99,924 | ||||||
Gains on loans held for sale |
| (977 | ) | |||||
Losses on writedowns or sale of other real estate |
4,217 | 2,547 | ||||||
Losses on disposal of miscellaneous assets |
10 | 7 | ||||||
Increase in cash surrender value of bank owned life insurance |
(155 | ) | (874 | ) | ||||
Decrease in other assets |
4,099 | 2,428 | ||||||
Decrease in accrued interest receivable |
364 | 285 | ||||||
Decrease in accrued interest payable |
(385 | ) | (856 | ) | ||||
Decrease in other liabilities |
(294 | ) | (5,646 | ) | ||||
Net cash provided by operating activities |
14,562 | 17,145 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from maturities, calls and paydowns of securities available for sale |
62,220 | 46,774 | ||||||
Proceeds from sales, maturities, calls and paydowns of securities held to maturity |
| 24,103 | ||||||
Proceeds from sales of securities available for sale |
169,950 | 128,527 | ||||||
Purchase of securities available for sale |
(313,820 | ) | (217,905 | ) | ||||
Net decrease in loans |
130,689 | 87,092 | ||||||
Capital expenditures, net of proceeds from sale of miscellaneous assets |
| 15,443 | ||||||
Proceeds from sale of other real estate |
5,974 | 6,252 | ||||||
Net cash provided by investing activities |
55,013 | 90,286 | ||||||
Cash flows from financing activities: |
||||||||
Net decrease in demand, NOW, money market and savings deposits |
(46,836 | ) | (60,949 | ) | ||||
Net decrease in time deposits |
(30,601 | ) | (38,514 | ) | ||||
Net increase (decrease) in overnight and short-term borrowings |
1,000 | (24,956 | ) | |||||
Net increase (decrease) in long-term borrowings |
(17,000 | ) | 5,999 | |||||
Net cash used in financing activities |
(93,437 | ) | (118,420 | ) | ||||
Net decrease in cash equivalents |
(23,862 | ) | (10,989 | ) | ||||
Cash and cash equivalents at beginning of period |
73,374 | 48,983 | ||||||
Cash and cash equivalents at end of period |
$ | 49,512 | $ | 37,994 | ||||
See notes to condensed consolidated financial statements.
7
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
September 30, 2010
(Unaudited)
1. UNAUDITED FINANCIAL STATEMENTS
Bank of Granite Corporations (the Companys or the Holding Companys) condensed
consolidated balance sheet as of September 30, 2010, and the condensed consolidated
statements of income (loss) and comprehensive income (loss) for the three and nine-month
periods ended September 30, 2010 and 2009, and the condensed consolidated statements of
changes in stockholders equity and cash flows for the nine-month periods ended September
30, 2010 and 2009 are unaudited and reflect all adjustments of a normal recurring nature
which are, in the opinion of management, necessary for a fair presentation of the interim
period financial statements. Amounts as of December 31, 2009 included in the condensed
consolidated financial statements and related notes were derived from the audited consolidated financial statements.
Certain amounts for the periods ended September 30, 2009 have been reclassified to conform
to the presentation for the periods ended September 30, 2010.
The unaudited interim condensed consolidated financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission
for interim financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been
condensed or omitted. These interim condensed consolidated financial statements should be
read in conjunction with the Companys December 31, 2009 audited consolidated financial
statements and notes thereto included in the Companys 2009 Annual Report on Form 10-K.
The consolidated financial statements include the Companys two wholly owned subsidiaries,
Bank of Granite (the Bank), a full service commercial bank, and Granite Mortgage, Inc.
(Granite Mortgage), a mortgage banking company which discontinued its origination
activities during 2009. Because we now operate, manage, and, likewise, direct our
corporate governance activities as a single reporting banking segment, we no longer have
any reportable segments.
The accounting policies followed are set forth in Note 1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2009 on file with the Securities and Exchange
Commission. There were no changes in significant accounting policies during the nine months
ended September 30, 2010 except as described in Note 5 below.
2. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS
Regulatory Actions
In 2009, the Bank entered into a Stipulation and Consent (Consent) to the issuance of an
Order to Cease and Desist (Order) by the Federal Deposit Insurance Corporation (FDIC)
and the North Carolina Commissioner of Banks (The Commissioner). Based on the Companys
Consent, the FDIC and the Commissioner jointly issued the Order on August 27, 2009.
On November 11, 2009, the Company entered into a Memorandum of Understanding (FRB
Memorandum) with the Federal Reserve Bank of Richmond (FRB).
The Order is a formal corrective action pursuant to which the Bank has agreed to address
specific issues set forth below, through the adoption and implementation of procedures,
plans and policies designed to enhance the safety and soundness of the Bank.
8
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Among other things, the Order requires the Bank to:
| Present a written capital plan to the FDIC and the Commissioner by which the Bank would achieve a Tier 1 Leverage Capital Ratio of not less than 8 percent and Total Risk-Based Capital Ratio of not less than 12 percent during the life of the Order; | ||
| Formulate a plan to improve the Banks earnings and evaluate the plan quarterly; | ||
| Formulate and implement a plan to reduce the Banks risk exposure in assets classified Substandard or Doubtful; | ||
| Reduce the real estate credit concentrations in the Banks loan portfolio; | ||
| Develop a plan to improve the Banks liquidity; monitor contingent funding needs and improve asset liability management, and review and revise the plan on a quarterly basis; | ||
| Not pay cash dividends without the prior written consent of the FDIC and the Commissioner; | ||
| Neither renew, roll-over nor increase the amount of brokered deposits above the amount outstanding at the date of the Order. |
The FRB Memorandum requires the Company to obtain FRB approval before paying dividends, taking dividends from its Bank, incurring debt or
purchasing/redeeming Company stock. The FRB Memorandum requires the submission of a capital plan to maintain adequate capital on a consolidated basis
and at the Bank. The Company must furnish periodic progress reports to the FRB regarding its compliance with the FRB Memorandum. The FRB Memorandum
will remain in effect until modified or terminated by the FRB.
The Bank reports regularly to its regulators on matters of compliance with the Order, and the progress made to comply with the Order. The Company
believes it is in substantial compliance with all matters except the earnings and capital requirements, and continued issues with asset quality.
Going Concern Considerations
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described herein create a
substantial doubt about the Companys ability to continue as a going concern.
The Bank has not achieved the required capital levels mandated by the Order. To date the Banks capital preservation activities have included balance
sheet restructuring that has included curtailed lending activity; surrendering bank owned life insurance policies; reorganizing the securities
portfolio to minimize the risk and related capital requirements; reducing salaries and certain other noninterest expenses; and curtailing the SERP
pension obligation to reduce future expenses. The Company has engaged external advisors and has pursued various capital enhancing transactions and
strategies throughout 2009 and to date in 2010. The operating loss in the nine months and quarter ended September 30, 2010 and the continuing level of
problem loans have further eroded capital levels from December 31, 2009. There can be no assurance that any capital raising activities or other
measures will allow the Bank to meet the capital levels required in the Order. Non-compliance with the capital requirements of the Order and the
continued erosion of capital in the nine months ended September 30, 2010 may cause the Bank to be subject to further enforcement actions by the FDIC
or the Commissioner.
9
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Capital Matters
The Order, as set forth above, requires the Bank to achieve and maintain Tier 1 Leverage Capital Ratio of
not less than 8 percent and a Total Risk-Based Capital of not less than 12 percent for the life of the Order.
The minimum capital requirements to be characterized as well capitalized and adequately capitalized, as
defined by regulatory guidelines, and the Companys actual capital ratios on a consolidated and Bank-only
basis were as follows as of September 30, 2010:
Minimum Regulatory | ||||||||||||||||||||
Requirement | ||||||||||||||||||||
Actual | Adequately | Well | Pursuant to | |||||||||||||||||
Consolidated | Bank | Capitalized | Capitalized | Order | ||||||||||||||||
Leverage capital ratios |
2.94 | % | 2.80 | % | 4.00 | % | 5.00 | % | 8.00 | % | ||||||||||
Risk-based capital ratios: |
||||||||||||||||||||
Tier 1 capital |
4.53 | % | 4.34 | % | 4.00 | % | 6.00 | % | 8.00 | % | ||||||||||
Total capital |
5.82 | % | 5.63 | % | 8.00 | % | 10.00 | % | 12.00 | % |
3. EARNINGS PER SHARE
Earnings per share have been computed using 15,454,000 shares of common stock outstanding as there
have been no changes during the periods reported. The levels of outstanding stock options are insignificant
and are not included for any period because their inclusion would be anti-dilutive.
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business there are various commitments and contingent liabilities such as
commitments to extend credit, which are not reflected on the financial statements. The unfunded portion
of loan commitments and standby letters of credit as of September 30, 2010 and December 31, 2009 were
as follows:
September 30, | December 31, | |||||||
(In thousands) | 2010 | 2009 | ||||||
Financial instruments whose contract amounts represent credit risk |
||||||||
Unfunded commitments to extend credit |
$80,102 | $ | 106,122 | |||||
Standby letters of credit |
1,759 | 2,967 |
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts outstanding do not necessarily represent future cash requirements.
Standby letters of credit represent conditional commitments issued by the Bank to assure the performance of
a customer to a third party.
10
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
The Banks exposure to credit loss for commitments to extend credit and standby letters of credit is the
contractual amount of those financial instruments. The Bank uses the same credit policies for making
commitments and issuing standby letters of credit as it does for on-balance sheet financial instruments. Each
customers creditworthiness is evaluated on an individual case-by-case basis. The amount and type of
collateral, if deemed necessary by management, is based upon this evaluation of creditworthiness. Collateral
held varies, but may include marketable securities, deposits, property, plant and equipment, investment
assets, inventories and accounts receivable. Management does not anticipate any significant losses as a result
of these financial instruments.
Legal Proceedings
The nature of the businesses of the Companys subsidiaries ordinarily results in a certain amount of
litigation. The Companys subsidiaries are involved in various legal proceedings, all of which are
considered incidental to the normal conduct of business. Management believes that the liabilities, if any,
arising from these proceedings will not have a material adverse effect on the consolidated financial position
or consolidated results of operations of the Company.
5. NEW ACCOUNTING STANDARDS
In January 2010, the Financial Accounting Standards Board (FASB) issued an update to the accounting
standards for the presentation on fair value disclosures. The new guidance requires disclosures about inputs
and valuation techniques for Level 2 and 3 fair value measurements, clarifies two existing disclosure
requirements and requires two new disclosures as follows: (1) a gross presentation of activities
(purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the
net presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2
measurements. This guidance is effective for the first interim or annual reporting period beginning after
December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is
required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods
within those years. The Company adopted the fair value disclosures guidance on January 1, 2010, except for
the gross presentation of the Level 3 rollforward information which is not required to be adopted by the
Company until January 1, 2011.
In July 2010, the FASB issued an update to the accounting standards governing the disclosures associated
with credit quality and the allowance for loan losses. This new guidance requires additional disclosures
related to the allowance for loan losses with the objective of providing financial statement users with greater
transparency about an entitys loan loss reserves and overall credit quality. Additional disclosures include
showing on a disaggregated basis the aging of receivables, credit quality indicators, and troubled debt
restructures with their effect on the allowance for loan losses. The provisions of this standard are effective
for interim and annual reporting periods ending on or after December 15, 2010. The adoption of this
standard will not have a material impact on the Companys financial position and results of operations;
however, it will increase the amount of disclosures in the notes to the consolidated financial statements.
11
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
In the third quarter of 2010, the SEC amended its rules and forms to reflect the provision of the Dodd-Frank
Wall Street Reform and Consumer Protection Act that permanently exempts non-accelerated filers from the
requirement of Section 404 (b) of the Sarbanes-Oxley Act to include in annual reports filed with the
SEC the auditors attestation report on managements assessment of internal control over financial reporting.
This rule was effective September 21, 2010, and the Companys 2010 annual reporting will be subject to the
new ruling.
6. FAIR VALUE MEASUREMENTS AND DISCLOSURES
Investment Securities Available for Sale
A significant portion of the Companys available for sale investment portfolio is government guaranteed, and
the fair value measurements for the third quarter of 2010 were estimated using independent pricing sources
that were determined to be Level 2 measurements, Significant Other Observable Inputs. Unrealized gains
and losses on securities available for sale are reflected in accumulated other comprehensive income and
recognized gains and losses are reported as securities gains and losses in noninterest income.
The following tables reflect investment securities available for sale measured at fair value on a recurring
basis at September 30, 2010 and December 31, 2009:
Fair Value Measurements at | ||||||||||||||||
Reporting Date Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
(In thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
September 30, 2010 |
||||||||||||||||
U.S. Government agencies |
$ | 55,652 | $ | | $ | 55,652 | $ | | ||||||||
Government agency and other
mortgage-backed securities |
218,428 | | 218,428 | | ||||||||||||
Corporate bonds |
3,490 | | 3,490 | | ||||||||||||
Total investment securities
available for sale |
$ | 277,570 | $ | | $ | 277,570 | $ | | ||||||||
December 31, 2009 |
||||||||||||||||
U.S. Government agencies |
$ | 42,051 | $ | | $ | 42,051 | $ | | ||||||||
Government agency and other
mortgage-backed securities |
147,831 | | 147,831 | | ||||||||||||
Equities |
1,039 | 1,039 | | | ||||||||||||
Total investment securities
available for sale |
$ | 190,921 | $ | 1,039 | $ | 189,882 | $ | | ||||||||
12
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Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
The Company utilizes a third party pricing service to provide valuations on its securities portfolio. Despite
most of these securities being U.S. Government agency debt obligations, corporate bonds, and agency
mortgage-backed securities, third party valuations are determined based on the characteristics of a security
(such as maturity, duration, rating, etc.) and in reference to similar or comparable securities. Due to the
nature and methodology of these valuations, the Company considers these fair value measurements as
Level 2. No securities were transferred between Level 1 and Level 2 during the first three quarters of 2010.
Impaired Loans
Loans considered impaired are loans for which, based on current information and events, it is probable
that the creditor will be unable to collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect write-downs that
are based on the market price or current appraised value of the collateral, adjusted to reflect local market
conditions or other economic factors. After evaluating the underlying collateral, the fair value of the
impaired loans is recorded by allocating specific reserves from the allowance for loan losses to the loans.
Thus, the fair value reflects the loan balance less the specifically allocated reserve. Impaired loans for
which no reserve has been specifically allocated are not included in the table below. At September 30,
2010, all impaired loan values were determined to be based on Level 3 measurements.
Other Real Estate Owned
Other real estate owned is initially accounted for at fair value, less estimated costs to dispose of the
property. Any excess of the recorded investment over fair value, less costs to dispose, is charged to the
allowance for loan losses at the time of transfer. Updated appraisals or evaluations are obtained at least
annually for all other real estate owned properties. These appraisals are used to update fair value estimates.
Writedowns are charged to earnings for subsequent losses on other real estate owned when these updates
indicate such losses have occurred. The ability of the Company to recover the carrying value of other
real estate owned is based upon future sales of the real estate. The ability to effect such sales is subject
to market conditions and other factors beyond our control, and future declines in the value of the real estate
could result in writedowns and charges to earnings. At September 30, 2010, the fair value measurements
for other real estate were determined to be Level 3 measurements.
13
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
The following tables reflect certain loans and other real estate measured at fair value on a nonrecurring basis
at September 30, 2010 and December 31, 2009:
Fair Value Measurements at | ||||||||||||||||
Reporting Date Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
(In thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
September 30, 2010 |
||||||||||||||||
Impaired loans (1) |
$ | 49,222 | $ | | $ | | $ | 49,222 | ||||||||
Other real estate owned |
15,205 | | | 15,205 | ||||||||||||
Total assets |
$ | 64,427 | $ | | $ | | $ | 64,427 | ||||||||
December 31, 2009 |
||||||||||||||||
Impaired loans (1) |
$ | 26,788 | $ | | $ | | $ | 26,788 | ||||||||
Other real estate owned |
13,235 | | | 13,235 | ||||||||||||
Total assets |
$ | 40,023 | $ | | $ | | $ | 40,023 | ||||||||
(1) | Net of reserves and loans carried at cost. |
7. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of
investment securities at September 30, 2010 and December 31, 2009 were as follows:
(In thousands) | Amortized | Gross Unrealized | Fair | |||||||||||||
Type and Contractual Maturity | Cost | Gains | Losses | Value | ||||||||||||
AVAILABLE FOR SALE |
||||||||||||||||
At September 30, 2010: |
||||||||||||||||
U.S. Government agencies due: |
||||||||||||||||
Within 1 year |
$ | 1,508 | $ | 2 | $ | | $ | 1,510 | ||||||||
After 5 years but within 10 years |
39,505 | 188 | | 39,693 | ||||||||||||
After 10 years |
14,400 | 49 | | 14,449 | ||||||||||||
Total U.S. Government agencies |
55,413 | 239 | | 55,652 | ||||||||||||
Government agency and other
mortgage-backed securities due: |
||||||||||||||||
After 10 years |
219,077 | 1,034 | 1,683 | 218,428 | ||||||||||||
Corporate bonds due: |
||||||||||||||||
After 5 years but within 10 years |
3,500 | | 10 | 3,490 | ||||||||||||
Total available for sale |
$ | 277,990 | $ | 1,273 | $ | 1,693 | $ | 277,570 | ||||||||
14
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(unaudited)
Sales and calls of securities available for sale for the nine months ended September 30, 2010 resulted in
proceeds of $210.1 million, $2.3 million in realized gains and $0.3 million in realized losses.
As of September 30, 2010, accumulated other comprehensive losses, net of deferred income taxes,
included unrealized net losses of $420 thousand, net of deferred income tax benefit of $167 thousand,
related to securities available for sale.
Sales and calls of securities available for sale for the nine months ended September 30, 2009 resulted in
proceeds of $160.4 million, $839 thousand in realized gains and $336 in realized losses. The amortized cost
of certain equity securities were written down by $582 thousand in the first nine months of 2009, and certain
debt securities were written down $414 thousand in the first nine months of 2009, for credit related declines
in value deemed to be other-than-temporary, resulting in a charge to earnings. Sales and calls of securities
held to maturity resulted in proceeds of $24.1 million for the nine months ended September 30, 2009, $501
thousand in realized gains and $19 thousand in realized losses.
As of September 30, 2009, accumulated other comprehensive income, net of deferred income taxes,
included unrealized net gains of $1.0 million, net of deferred income taxes of $0.4 million, related to
securities available for sale.
(In thousands) | Amortized | Gross Unrealized | Fair | |||||||||||||
Type and Contractual Maturity | Cost | Gains | Losses | Value | ||||||||||||
AVAILABLE FOR SALE |
||||||||||||||||
At December 31, 2009: |
||||||||||||||||
U. S. Government agencies due: |
||||||||||||||||
Within 1 year |
$ | 1,539 | $ | 9 | $ | | $ | 1,548 | ||||||||
After 1 year but within 5 years |
38,172 | | 1,434 | 36,738 | ||||||||||||
After 5 years but within 10 years |
4,000 | | 235 | 3,765 | ||||||||||||
Total U.S. Government agencies |
43,711 | 9 | 1,669 | 42,051 | ||||||||||||
Government agency and other
mortgage-backed securities due: |
||||||||||||||||
After 10 years |
150,738 | 192 | 3,099 | 147,831 | ||||||||||||
Others*: |
||||||||||||||||
Common stocks and mutual funds |
853 | 186 | | 1,039 | ||||||||||||
Total available for sale |
$ | 195,302 | $ | 387 | $ | 4,768 | $ | 190,921 | ||||||||
* | Others include investments in common stocks, preferred stocks and mutual funds. |
15
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Securities with unrealized losses at September 30, 2010 and December 31, 2009 not recognized in income,
all of which have been in a loss position less than 12 months were as follows:
September 30, 2010 | December 31, 2009 | ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | ||||||||||||||
(In thousands) | Value | Loss | Value | Loss | |||||||||||||
Less than 12 months: |
|||||||||||||||||
U.S. Government agencies |
$ | | $ | | $ | 40,503 | $ | 1,669 | |||||||||
Government agency and other
mortgage-backed securities |
131,970 | 1,683 | 124,311 | 3,099 | |||||||||||||
Corporate bonds |
3,490 | 10 | | | |||||||||||||
Total temporarily impaired |
$ | 135,460 | $ | 1,693 | $ | 164,814 | $ | 4,768 | |||||||||
Unrealized losses on securities have not been recognized in income because management has the intent and
ability to hold for the foreseeable future, and the decline in fair value is largely due to decreases in market
interest rates. The fair value is expected to recover as the securities approach their maturity date and/or
market interest rates decline. Furthermore, it is not likely that the Company will have to sell any impaired
securities before a recovery of the amortized cost.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value information about financial instruments, whether or not recognized in the balance sheet, for
which it is practical to estimate the value, is based upon the characteristics of the instruments and relevant
market information. Financial instruments include cash, evidence of ownership in an entity or contracts that
convey or impose on an entity the contractual right or obligation to either receive or deliver cash for another
financial instrument. These fair value estimates are based on relevant market information and information
about the financial instruments. Fair value estimates are intended to represent the price for which an asset
could be sold or liability could be settled. However, given there is no active market or observable market
transactions for many of the Companys financial instruments, it has made estimates of many of these fair
values which are subjective in nature, involve uncertainties and matters of significant judgment, and are
imprecise. Changes in assumptions could significantly affect the estimated values. The fair value estimates
are determined in accordance with the accounting standards for Fair Value Measurements and Disclosures.
16
Table of Contents
Bank of Granite Corporation
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements (continued)
September 30, 2010
(Unaudited)
September 30, 2010 | December 31, 2009 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
(In thousands) | Amount | Value | Amount | Value | ||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 49,512 | $ | 49,512 | $ | 73,374 | $ | 73,374 | ||||||||
Investment securities |
277,570 | 277,570 | 190,921 | 190,921 | ||||||||||||
Bank owned life insurance |
4,261 | 4,261 | 4,106 | 4,106 | ||||||||||||
Loans (1) |
576,407 | 581,500 | 747,182 | 752,000 | ||||||||||||
Market risk/liquidity adjustment |
| (30,000 | ) | | (40,000 | ) | ||||||||||
Net loans |
576,407 | 551,500 | 747,182 | 712,000 | ||||||||||||
Liabilities: |
||||||||||||||||
Demand deposits |
383,209 | 383,209 | 430,045 | 430,045 | ||||||||||||
Time deposits |
505,959 | 506,800 | 536,560 | 539,000 | ||||||||||||
Overnight and short-term borrowings |
21,000 | 21,000 | 20,000 | 20,000 | ||||||||||||
Long-term borrowings |
3,000 | 3,300 | 20,000 | 21,000 |
(1) | Loan fair values are based on a hypothetical exit price, which does not represent the estimated intrinsic value of the loan if held for investment. The assumptions used are expected to approximate those that a market participant purchasing the loans would use to value the loans, including a market risk premium and liquidity discount. |
Estimating the fair value of the loan portfolio when loan sales and trading markets are illiquid, are for
certain loan types, or are nonexistent, requires significant judgment. Therefore, the estimated fair value can
vary significantly depending on a market participants ultimate considerations and assumptions. The final
value yields a market participants expected return on investment that is indicative of the current distressed
market conditions, but it does not take into consideration the Companys estimated value from continuing to
hold these loans or its lack of willingness to transact at these estimated values.
The Company estimated fair value based on estimated future cash flows discounted at current origination
rates for loans with similar terms and credit quality. The estimated values in 2010 are a function of higher
credit spreads, partially offset by lower risk-free interest rates. However, the values derived from
origination rates at September 30, 2010 likely do not represent exit prices due to the distressed market
conditions; therefore, incremental market risks and liquidity discounts ranging from 2% to 25%, depending
on the nature of the loans, were subtracted to reflect the illiquid and distressed market conditions as of
September 30, 2010. The discounted value is a function of a market participants required yield in the
current environment and is not a reflection of the expected cumulative losses on the loans.
The book values of cash and due from banks, interest-bearing deposits, accrued interest receivable, accrued
interest payable and other liabilities are considered to be equal to fair values as a result of the short-term
nature of these items. The fair values of investment securities are based on quoted market prices, dealer
quotes and prices obtained from independent pricing services. The fair value of time deposits, other
borrowings, commitments and guarantees is estimated based on present values using applicable risk-adjusted
spreads to the U.S. Treasury curve to approximate current entry-value interest rates applicable to each
category of such financial instruments.
17
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Disclosures About Forward Looking Statements
The discussions included in Part I of this document contain statements that may be deemed forward looking
statements within the meaning of the Private Securities Litigation Act of 1995, including Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve
known and unknown risks, uncertainties and other factors that may cause actual results to differ materially
from these statements. For the purposes of these discussions, any statements that are not statements of
historical fact may be deemed to be forward looking statements. Such statements are often characterized by
the use of qualifying words such as expects, anticipates, believes, estimates, plans, projects,
or other statements concerning opinions or judgments of our Company and our management about future
events. The accuracy of such forward looking statements could be affected by certain factors, including but
not limited to, the financial success or changing conditions or strategies of our customers or vendors,
fluctuations in interest rates, actions of government regulators, the availability of capital and personnel,
failure to comply with regulatory orders, and general economic conditions. For additional factors that
could affect the matters discussed in forward looking statements, see the Risk Factors section in the
Companys most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Introduction
Managements Discussion and Analysis is provided to assist in understanding and evaluating our results of
operations and financial condition. The following discussion is intended to provide a general overview of
our performance for the three and nine-month periods ended September 30, 2010. Readers seeking more
in-depth information should read the more detailed discussions below as well as the condensed consolidated
financial statements and related notes included under Item 1 of this quarterly report. The Regulatory
Matters and Going Concern Considerations in Note 2 of the Notes to Condensed Consolidated Financial
Statements addresses the significant risks and uncertainties for the Company.
All information presented is consolidated data unless otherwise specified. Uncertainty and future events
could cause changes in accounting estimates that have material effects on the financial position and results
of operations in future periods.
Executive Overview
The loss for the nine months ended September 30, 2010 of $21.2 million compared to $12.5 million for the
same period of 2009 is primarily indicative of the depth of the economic depression which is affecting all
businesses and the values of all classes of assets in the Banks markets. The $15.1 million increase in the
loan loss provision compared to 2009 is the resultant impact.
While the 2010 third quarter loss of $4.3 million is less than the first two quarters of 2010, all three quarters
exceed the comparative periods of 2009 by large margins. The third quarter loan loss provision was higher
by $2.6 million as credit related issues in the loan portfolio accelerated.
Net
interest income for the first nine months of 2010 is stable as compared to the same period for 2009.
The third quarter results reflect erosion in the comparative net
interest income amounts and the lower sequential
net interest margin. The primary causes are the increasing nonaccrual component of the loan portfolio and
the continuing decline in yields for investment securities. The non-interest expense, which includes losses
on other real estate, fluctuates primarily because of periodic writedowns and losses on the sale of other real
estate properties.
18
Table of Contents
The balance sheet management continues to provide very high levels of liquidity. While loans and to a
lesser degree deposits are decreasing, this is consistent with the goal to provide a high level of liquidity in
the operation and to the extent necessary, down size the balance sheet as part of capital management.
The following sections of this discussion provide more detail regarding current and prior year matters.
Additionally, Note 2, Regulatory Matters and Going Concern Consideration, in the Notes to
Consolidated Financial Statements discusses the regulatory and capital levels in significantly more
detail.
Results of Operations
For the Three Months and Nine Months Ended September 30, 2010
Compared With the Same Periods in 2009
Financial Highlights for | Three Months | |||||||||||
the Quarterly Periods | Ended September 30, | |||||||||||
(In thousands except per share amounts) | 2010 | 2009 | % change | |||||||||
Earnings |
||||||||||||
Net interest income |
$ | 7,433 | $ | 8,195 | -9.3 | % | ||||||
Provision for loan losses |
7,321 | 4,760 | 53.8 | % | ||||||||
Other income |
3,324 | 2,159 | 54.0 | % | ||||||||
Other expense |
7,746 | 9,324 | -16.9 | % | ||||||||
Net loss |
(4,310 | ) | (3,730 | ) | 15.5 | % |
Financial Highlights for | Nine Months | |||||||||||
the Year-to-Date Periods | Ended September 30, | |||||||||||
(In thousands except per share amounts) | 2010 | 2009 | % change | |||||||||
Earnings |
||||||||||||
Net interest income |
$ | 23,777 | $ | 23,222 | 2.4 | % | ||||||
Provision for loan losses |
27,924 | 12,863 | 117.1 | % | ||||||||
Other income |
6,903 | 6,946 | -0.6 | % | ||||||||
Other expense |
24,717 | 29,781 | -17.0 | % | ||||||||
Net loss |
(21,171 | ) | (12,476 | ) | 69.7 | % | ||||||
Per share |
||||||||||||
Net loss |
||||||||||||
- Basic |
$ | (1.37 | ) | $ | (0.81 | ) | 69.1 | % | ||||
- Diluted |
(1.37 | ) | (0.81 | ) | 69.1 | % | ||||||
Average for period |
||||||||||||
Assets |
$ | 1,010,545 | $ | 1,127,850 | -10.4 | % | ||||||
Loans |
688,728 | 894,524 | -23.0 | % | ||||||||
Deposits |
926,251 | 979,893 | -5.5 | % | ||||||||
Stockholders equity |
40,247 | 69,876 | -42.4 | % |
Performance Summary
Net interest income
Net interest income of $7.4 million for the third quarter of 2010 was down 6.8% from the second quarter
of 2010 and is reflective of the contracting loan portfolio (down $168.7 million or 21.8% since December
2009).
The third quarter 2010 net interest margin of 3.37% was slightly lower than the first two quarters of 2010.
19
Table of Contents
The net interest income for the first nine-month periods of $23.8 million for 2010 versus $23.2 million for
2009 reflects the net interest margin improvement of 3.43% for 2010 versus 2.98% for 2009 as the Bank
focused on risk based loan pricing while cost of funds rates were declining because of the Federal Reserve
reductions of interest rates in late 2008.
Provision for loan losses
The provision for loan losses of $7.3 million for the third quarter was down $1.2 million from the second
quarter of 2010 as the continued resolution of problem assets reduced the size of the loan portfolio and
required lower levels of provisions to maintain the allowance for losses at reasonable levels.
The provision for loan losses for the first nine-month period of 2010 of $27.9 million versus $12.9 million
for the same period of 2009 is reflective of the escalating severity of the effect of the economic depression
on asset values underlying the loan portfolio and increased nonperforming loans.
See additional discussion in the Executive Overview and Provisions for Loan Losses, Allowance for Loan
Losses and Discussions of Asset Quality.
Other noninterest income
Noninterest income in the third quarter of 2010 was higher on a linked quarter basis and increased from
$2.2 million in 2009 to $3.3 million in 2010. The significant change for the comparative three-month
periods is the $1.7 million securities gains included in the
2010 quarter compared to a $34 thousand loss
in 2009.
The deposit service charges were slightly lower for the comparative nine-month periods $3.7 million for
2010 versus $4.0 million for 2009.
The total noninterest income for the nine-month periods remained consistent ($6.9 million for each period).
Noninterest income reflects the inclusion of $0.9 million mortgage banking income in 2009, which was not
included in 2010, and $874 thousand income on Bank owned life insurance in 2009, compared to $155
thousand in 2010. Securities gains increased $1.0 million from $985 thousand for the nine months ended
September 30, 2009 to $2.0 million for the nine months ended September 30, 2010.
Noninterest expense
Noninterest expense was down in the third quarter of 2010 by $1.6 million compared to 2009, primarily
because of the $1.4 million decrease in salaries and benefits, which is consistent with the nine-month change
discussed below. All other expense categories remained controlled and consistent in comparative periods.
The nine-month comparison in which 2010 noninterest expense was less than 2009 reflects the significant
decrease in salaries and benefits $3.7 million for the Bank, or a 32.0% decrease related to continued
staff reductions, and $2.6 million for the mortgage company in 2009. The mortgage company
operations were essentially closed in the second half of 2009. These
amounts were offset by the $2.0 million increase in
other real estate writedowns reflected in the other expense category.
Income taxes
The income tax benefit of $0.8 million in the first nine months of 2010 was recorded after the 2009 income
tax returns were filed and settled, when we determined the deferred tax valuation reserve exceeded the
recorded deferred tax assets by $0.8 million.
20
Table of Contents
Changes in Financial Condition
September 30, 2010 Compared With December 31, 2009
The following table reflects the changes in our assets and liabilities as of September 30, 2010 compared with
December 31, 2009.
September 30, | December 31, | |||||||||||||||
(In thousands) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Total assets |
$ | 947,090 | $ | 1,060,084 | $ | (112,994 | ) | -10.7 | % | |||||||
Earning assets |
886,867 | 967,703 | (80,836 | ) | -8.4 | % | ||||||||||
Cash and cash equivalents |
49,512 | 73,374 | (23,862 | ) | -32.5 | % | ||||||||||
Investment securities |
277,570 | 190,921 | 86,649 | 45.4 | % | |||||||||||
Gross loans |
606,359 | 775,019 | (168,660 | ) | -21.8 | % | ||||||||||
Investment in bank owned life insurance |
4,261 | 4,106 | 155 | 3.8 | % | |||||||||||
Other assets |
21,321 | 25,028 | (3,707 | ) | -14.8 | % | ||||||||||
Total liabilities |
$ | 918,882 | $ | 1,012,998 | $ | (94,116 | ) | -9.3 | % | |||||||
Deposits |
889,168 | 966,605 | (77,437 | ) | -8.0 | % | ||||||||||
Non-interest-bearing demand deposits |
98,152 | 109,673 | (11,521 | ) | -10.5 | % | ||||||||||
Interest-bearing demand deposits |
264,449 | 301,578 | (37,129 | ) | -12.3 | % | ||||||||||
NOW accounts |
111,973 | 145,833 | (33,860 | ) | -23.2 | % | ||||||||||
Money market accounts |
152,476 | 155,745 | (3,269 | ) | -2.1 | % | ||||||||||
Savings deposits |
20,608 | 18,794 | 1,814 | 9.7 | % | |||||||||||
Time deposits |
505,959 | 536,560 | (30,601 | ) | -5.7 | % | ||||||||||
Overnight and short-term borrowings |
21,000 | 20,000 | 1,000 | 5.0 | % | |||||||||||
Long-term borrowings |
3,000 | 20,000 | (17,000 | ) | -85.0 | % | ||||||||||
Other liabilities |
4,398 | 4,692 | (294 | ) | -6.3 | % |
The changes in the Companys balance sheet for the nine months ended September 30, 2010 reflect the
continued deleveraging of the Bank and changing the risk based asset mix.
The loan portfolio contracted $168.7 million during first the nine months of 2010 due to continued
aggressive problem loan resolution; the pay off of large relationships whose borrower requirements
exceeded the Banks current risk tolerance; and the significantly declining market of quality loan
opportunities. The loan to deposit ratio at September 30, 2010 was 68.2% compared to 80.2% at
December 31, 2009.
The proceeds from the loan portfolio reduction have primarily been deployed as investment security
purchases ($87.0 million). As set forth in the financial statement footnotes, the securities portfolio is
predominately government backed mortgage securities or government agency single maturity bonds.
The Banks deposits decreased $77.4 million during the first nine months of 2010. While the offered deposit
rates are competitive in the market, the marketing and rate posture for the nine months has been neutral to
the local market. The Bank has been notified that the state of North Carolina is a high cost deposit market,
and that allows the Bank to price deposit products in relation to the local market offered rates as compared
to more restrictive national market rate caps. The issue has no effect currently; however, it could allow
the Bank more flexibility in pricing deposits in the future.
Liquidity and Asset/Liability Management
The Companys historical liquidity management process included anticipating operating cash requirements,
evaluating time deposit maturities, monitoring loan to deposit ratios, and correlating these activities to an
overall periodic internal liquidity measure. In evaluating our asset mix, we have sought to maintain a
securities portfolio sufficient to provide short-term liquidity in periods of unusual fluctuations.
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As outside funding sources have been withdrawn or restricted to current levels of
outstandings, our liquidity
management has focused on insuring adequate internal funding by the Bank.
The Banks primary internal sources of liquidity are customer deposits, cash and balances due
from other
Banks, and unencumbered investment securities. These funds, together with loan repayments, are
used to
fund continuing operations. Additionally, retail and commercial deposit balances fluctuate
significantly, and
we target liquidity levels to meet those periodic declines. The Banks liquidity (cash +
unencumbered
securities / total deposits) was approximately $262.5 million, or 29.5% of total deposits at
September 30, 2010 and has exceeded the 20% target throughout the third quarter.
As of September 30, 2010, our core deposits, defined as total deposits excluding time deposits
of $100
thousand or more, totaled $648.5 million, or 72.9% of our total deposits, compared to $719.0
million, or
74.4%, of our total deposits as of December 31, 2009.
Certificates of deposit of $100 thousand or more represented 27.1% and 25.6%, respectively, of
the Banks
total deposits at September 30, 2010 and December 31, 2009. Management believes that a sizeable
portion
of the Banks time deposits are relationship-oriented. Brokered certificates of deposit totaled
$4.7 million
and $8.2 million at September 30, 2010 and December 31, 2009, respectively. While the Bank
appreciates
the need to pay competitive rates to retain these deposits, other subjective factors also influence
deposit
retention. Based upon prior experience, the Bank anticipates that a substantial portion of
outstanding
certificates of deposit will renew upon maturity, if the Bank elects to competitively price these
deposits.
The Company utilizes an independent asset/liability modeling tool as a primary interest rate
management
guide. The periodic analysis considers the current contractual agreements for deposits, borrowings,
loans,
investments and any commitments to enter these transactions. Additionally current and projected
volumes,
scheduled payments and maturities and likely management pricing strategies in various rate
scenarios are
considered. Although these methods are subject to the accuracy of the assumptions that underlie the
process
and do not take into account the pricing strategies that management would undertake in response to
sudden
interest rate changes, the Company believes that these methods provide a better indication of the
sensitivity
of earnings to changes in interest rates than other analyses.
The objective of the Banks asset/liability management process is focused on providing
relative stability and
reduction of volatility for the Banks net interest income through various scenarios of changes in
interest
rates. The process attempts to balance the need for stability and predictability of net interest
income against
competing needs such as balance sheet mix constraints, overall earnings targets and the risk/return
relationships between liquidity, interest rate risk, market risk and capital adequacy. The Bank
maintains an
asset/liability management policy approved by the Banks Board of Directors. This policy and the
analysis
process undertaken by management and the Boards Asset/Liability Management Committee (ALCO)
provides guidelines to control the exposure of its earnings to changing interest rates by generally
endeavoring to maintain a position within a range around an earnings neutral position, which is
defined
as the mix of assets and liabilities that generate a net interest margin that is least affected by
interest rate
changes.
The management of interest rate risk and the overall asset/liability position is integrated
with the liquidity
management process. Currently less than 10% of the Banks loans are directly related to market
interest
rates. The remaining loans are fixed rate or relate to the Banks independent index, which relates
more
directly to the Banks operating footprint.
In the current environment, the Bank is generally investing available funds in securities,
primarily securities
issued by U.S. governmental agencies, to manage liquidity and to limit any credit risk and risk
based asset
allocation.
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The gap analysis that we conducted for the current balance sheet indicates the Company is
liability sensitive.
However, the flexibility provided by the small percentage of loans tied to market rates versus the
Banks
index and the general flexibility in deposit pricing results in managements most likely pricing
action
producing increased net interest income in moderately increasing or decreasing interest rate
scenarios.
(This is more indicative of an asset sensitive balance sheet.) Under a moderate rising rate
environment
the Companys interest rate risk is moderate and net interest income would be expected to increase
modestly.
Provisions for Loan Losses, Allowance for Loan Losses and Discussions of Asset Quality
The risks inherent in our loan portfolio, including the adequacy of the allowance or reserve
for loan losses,
are significant estimates that are based on assumptions by our management regarding, among other
factors,
general and local economic conditions, which are difficult to predict. In estimating these risks
and the
related loss reserve levels, we also consider the financial conditions of specific borrowers and
credit
concentrations with specific borrowers, groups of borrowers, and industries.
We use several measures to assess and monitor the credit risks in our loan portfolio,
including a loan
grading system that begins upon loan origination and continues until the loan is collected or
collectibility
becomes doubtful. When originated or renewed, all loans over a certain dollar amount receive
in-depth
reviews and risk assessments by the Banks Credit Administration. Furthermore, loans and
commitments of
$500 thousand or more made during the month, as well as commercial loans past due 30 days or more,
are
reviewed monthly by the Loan Committee of the Banks Board of Directors.
Large commercial loans that exhibit probable or observed credit weaknesses are subject to
individual review
for impairment. When individual loans are impaired, the impairment allowance is measured in
accordance
with the accounting standard entitled Accounting By Creditors for Impairment of a Loan. The
predominant
measurement method for the Bank is the evaluation of the fair value of the underlying collateral.
Allowance
levels are estimated for other commercial loans in the portfolio based on their assigned credit
risk grade,
type of loan and other matters related to credit risk. The Bank aggregates non-graded retail type
loans into
pools of similar credits and reviews the historical loss experience associated with these pools as
the criteria
to allocate the allowance to each category.
The allowance for loan losses is comprised of three components: specific reserves, general
reserves and
unallocated reserves. Generally, all loans with outstanding balances of $250 thousand or greater
that have
been identified as impaired are reviewed periodically in order to determine whether a specific
allowance is
required. When the value of the impaired loan is less than the recorded investment in the loan,
the amount
of the impairment is recorded as a specific reserve. Loans for which specific reserves are
provided are
excluded from the general allowance calculations as described below.
The general allowance reflects the best estimate of probable losses that exist within the
portfolios of loans
that have not been specifically identified. The general allowance for the commercial loan portfolio
is
established considering several factors including: current loan grades, historical loss rates,
estimated future
cash flows available to service the loan, and the results of individual loan reviews and analyses.
The
allowance for loan losses for consumer loans, mortgage loans, and leases is determined based on
past due
levels and historical projected loss rates relative to each portfolio.
The unallocated allowance is determined through our assessment of probable losses that are in
the portfolio
but are not adequately captured by the other two components of the allowance, including
consideration of
current economic and business conditions and regulatory requirements. The unallocated allowance
also
reflects our acknowledgement of the imprecision and subjectivity that underlie the assessment of
credit risk.
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The allowance for loan losses is created by direct charges to operations. Losses on loans are
charged against
the allowance for loan losses in the accounting period in which they are determined by us to be
uncollectible.
Recoveries during the period are credited to the allowance for loan losses.
Management is continuing to closely monitor the value of real estate serving as collateral for
our loans,
particularly lots and land under development, due to continued concern that the low level of real
estate sales
activity will continue to have a negative impact on the value of real estate collateral. In
addition, depressed
market conditions have adversely impacted, and may continue to adversely impact, the financial
condition
and liquidity position of certain of our borrowers. Also, the value of commercial real estate
collateral may
come under further pressure from weak economic conditions and prevailing unemployment levels.
We believe that our allowance is an adequate estimation of probable losses incurred in our
loan portfolio at
September 30, 2010. No assurance can be given, however, that adverse economic circumstances or
other
events, including additional and continued loan review, future regulatory examination findings or
changes in
borrowers financial conditions, will not result in increased losses in the loan portfolio or in
the need for
increases in the allowance for loan losses or further writedowns of other real estate owned.
The following table and subsequent discussion present an analysis of changes in the allowance
for loan
losses for the third quarters and year-to-date periods of 2010 and 2009, respectively.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
(In thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Allowance for loan losses, beginning of period |
$ | 29,620 | $ | 22,787 | $ | 27,837 | $ | 24,806 | ||||||||
Net charge-offs: |
||||||||||||||||
Loans charged off: |
||||||||||||||||
Real estate, commercial, financial and agricultural |
7,560 | 3,760 | 27,813 | 16,194 | ||||||||||||
Consumer loans |
38 | 82 | 151 | 227 | ||||||||||||
Total charge-offs |
7,598 | 3,842 | 27,964 | 16,421 | ||||||||||||
Recoveries of loans previously charged off: |
||||||||||||||||
Real estate, commercial, financial and agricultural |
594 | 233 | 2,090 | 2,616 | ||||||||||||
Consumer loans |
15 | 24 | 65 | 98 | ||||||||||||
Total recoveries |
609 | 257 | 2,155 | 2,714 | ||||||||||||
Net charge-offs |
6,989 | 3,585 | 25,809 | 13,707 | ||||||||||||
Loss provisions charged to operations |
7,321 | 4,760 | 27,924 | 12,863 | ||||||||||||
Allowance for loan losses, end of period |
$ | 29,952 | $ | 23,962 | $ | 29,952 | $ | 23,962 | ||||||||
Ratio of annualized net charge-offs during the
period to average loans during the period |
4.39 | % | 1.68 | % | 5.01 | % | 2.05 | % | ||||||||
Allowance coverage of annualized net charge-offs |
108.02 | % | 168.47 | % | 86.80 | % | 130.75 | % | ||||||||
Allowance as a percentage of loans |
4.94 | % | 2.89 | % | 4.94 | % | 2.89 | % |
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Nonperforming assets at September 30, 2010 and December 31, 2009 were as follows:
September 30, | December 31, | |||||||
(In thousands) | 2010 | 2009 | ||||||
Nonperforming assets: |
||||||||
Nonaccrual loans |
$ | 65,780 | $ | 40,736 | ||||
Restructured loans nonaccrual |
9,172 | 12,404 | ||||||
Total nonperforming loans |
74,952 | 53,140 | ||||||
Other real estate owned |
15,205 | 13,235 | ||||||
Total nonperforming assets |
$ | 90,157 | $ | 66,375 | ||||
Restructured loans accruing |
$ | 4,551 | $ | 13,284 | ||||
Loans past due 90 days or more and still accruing interest |
2,518 | 1,195 | ||||||
Nonperforming loans to total loans |
12.36 | % | 6.86 | % | ||||
Allowance coverage of nonperforming loans |
39.96 | % | 52.38 | % | ||||
Nonperforming assets to total assets |
9.52 | % | 6.26 | % |
If interest from nonaccrual loans, including impaired loans, had been recognized in accordance
with the
original terms of the loans, the estimated gross interest income for the third quarters of 2010 and
2009
that would have been recorded was approximately $1.1 million and $582 thousand, respectively. For
the
comparable year-to-date periods, interest income of approximately $2.8 million in 2010 and $1.2
million
in 2009 would have been recognized in accordance with the original terms of the nonaccrual loans.
We classify loans as nonaccrual when the loan is 90 days past due, or we believe the loan may
be impaired,
and the accrual of interest on such loans is discontinued. The recorded accrued interest
receivable deemed
uncollectible is reversed to the extent it was accrued in the current year or charged-off to the
extent it was
accrued in previous years. A loan classified as nonaccrual is returned to accrual status when the
obligation
has been brought current, it has been performed in accordance with its contractual terms for a
sufficient
period of time, and the ultimate collection of principal and interest is no longer considered
doubtful. Of the
Banks $75.0 million in nonperforming loans at September 30, 2010, approximately $30.0 million are
for
single family homes, unimproved land or residential lots in various stages of development. The
remaining
population consists of loans to a variety of small business operations that are in default.
All of our investment in impaired loans, $63.2 million at September 30, 2010 is included in
nonaccruing
loans in the table above, and the related loan loss allowance was $12.8 million. At December 31,
2009, our
investment in impaired loans was $38.9 million, and the related loan loss allowance was $7.7
million. The
average recorded balance of impaired loans was $50.5 million for the first nine months of 2010 and
$38.0
million for the first nine months of 2009.
In addition to the nonaccrual loans, the Bank has potential problem loans of approximately
$80.0 million at
September 30, 2010. Potential problem loans are loans as to which management had serious doubts as
to
the ability of the borrowers to comply with present repayment terms. These loans do not meet the
criteria
for, and are therefore not included in, nonperforming assets. Management defines potential problem
loans as those loans graded substandard in the Banks grading system. These loans were considered
in
determining the adequacy of the allowance for loan losses and are closely and regularly monitored
to
protect the Banks interests.
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Table of Contents
Changes in other real estate owned for the nine months ended September 30, 2010 and 2009 were
as follows:
Nine Months | ||||||||
Ended September 30, | ||||||||
(In thousands) | 2010 | 2009 | ||||||
Balance at beginning of period |
$ | 13,235 | $ | 6,805 | ||||
Additions |
12,161 | 19,420 | ||||||
Proceeds from sale |
(5,974 | ) | (6,252 | ) | ||||
Write-downs and net gain (loss) on sale |
(4,217 | ) | (2,547 | ) | ||||
Balance at end of period |
$ | 15,205 | $ | 17,426 | ||||
Off-Balance Sheet Arrangements
We have off-balance sheet commitments to lend in the forms of unfunded commitments to extend
credit and
standby letters of credit. Further discussions of off-balance sheet arrangements are included in
Note 4
under Notes to Condensed Consolidated Financial Statements.
Contractual Obligations
As of September 30, 2010, there were no material changes to contractual obligations in the
form of
long-term borrowings and operating lease obligations as compared to those disclosed in our Annual
Report
on Form 10-K for the year ended December 31, 2009. See also Note 4 under Notes to Condensed
Consolidated Financial Statements for changes in other commitments in the form of commitments to
extend credit and standby letters of credit.
Recent Legislation Impacting the Financial Services Industry
On July 21 2010, sweeping financial regulatory reform legislation entitled the Dodd-Frank
Wall Street
Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law. The Dodd-Frank
Act implements far-reaching changes across the financial regulatory landscape, including provisions
that,
among other things:
| Create a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation; | ||
| Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws; | ||
| Establish strengthened capital standards for banks and bank holding companies, and disallow trust preferred securities from being included in a banks Tier 1 capital determination (subject to a grandfather provision for existing trust preferred securities); | ||
| Contain a series of provisions covering mortgage loan original standards affecting, among other things, originator compensation, minimum repayment standards and pre-payments; | ||
| Require financial holding companies, such as our Company, to be well-capitalized and well-managed as of July 21, 2011. Bank holding companies and banks must also be both well-capitalized and well-managed in order to acquire banks located outside their home state; | ||
| Grant the Federal Reserve the power to regulate debit card interchange fees; | ||
| Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions; |
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Table of Contents
| Make permanent the $250 thousand limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100 thousand to $250 thousand and provide unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions; | ||
| Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts; and | ||
| Increase the authority of the Federal Reserve to examine our Company and our nonbank subsidiaries. |
Many provisions of the Dodd-Frank Act are subject to further
rulemaking over future years,
and the effects of the Act on the banking industry are not fully known at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
As of September 30, 2010, the end of the period covered by this Quarterly Report on Form 10-Q,
an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules
13(a)-15(e) and
15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act))
was performed under the supervision and with the participation of our management, including our
Chief
Executive Officer and our Chief Financial Officer. Based upon, and as of the date of this
evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in the reports
that we file
or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the
time
periods specified in the Securities and Exchange Commissions rules and forms, and (ii) accumulated
and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as
appropriate to allow timely decisions regarding required disclosures. During the period covered by
this
Quarterly Report, no change in our internal control over financial reporting has occurred that has
materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Part II Other Information
Item 1A Risk Factors
For additional factors that could affect the matters discussed above, see the Risk Factors
section of the
Companys most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The following is an addition to the Risk Factors included in our 2009 Annual Report on Form 10-K:
Continued decline in market value of Company stock could trigger delisting on the stock
exchange.
The market value of the Companys stock traded on the NASDAQ Global Select Market has declined
below $1.00 per share since mid August 2010. The Company received notice in September 2010 that it
has a 180 day grace period for the bid price to exceed $1.00 per share for 10 consecutive days. If
the
Companys stock price does not meet this criteria, the stock could be delisted.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of our securities or share repurchase transactions for the
three months
ended September 30, 2010.
27
Table of Contents
Item 6 Exhibits
Exhibits incorporated by reference into this filing were filed with the Securities and
Exchange Commission.
We provide these documents through our Internet site at www.bankofgranite.com or by mail upon
written
request.
3.1
|
Bank of Granite Corporations Restated Certificate of Incorporation, filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q dated May 9, 2006, is incorporated herein by reference. | |
3.2
|
Bank of Granite Corporations Amended and Restated Bylaws, filed as Exhibit 3.1 to our Current Report on Form 8-K dated April 28, 2008, is incorporated herein by reference. | |
4.1
|
Form of stock certificate for Bank of Granite Corporations common stock, filed as Exhibit 4.1 to our Registration Statement on Form S-4 (Registration Statement No. 333-104233) dated April 1, 2003, is incorporated herein by reference. | |
4.2
|
Articles 5, 6, 7, 10 and 13 of the Restated Certificate of Incorporation of Bank of Granite Corporation (included in Exhibit 3.1 hereto) | |
11.
|
Schedule of Computation of Net Income Per Share | |
The information required by this item is set forth under Item 1 of Part I, Note 3. | ||
31.1
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Bank of Granite Corporation (Registrant) |
||||
Date: November 15, 2010 | By: | /s/ Jerry A. Felts | ||
Jerry A. Felts | ||||
Chief Financial Officer and Principal Accounting Officer |
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Table of Contents
Exhibit Index
Begins | ||||
on Page | ||||
3.1
|
Certificate of Incorporation, as amended | * | ||
3.2
|
Amended and Restated Bylaws of the Registrant | * | ||
4.1
|
Form of stock certificate for Bank of Granite Corporations common stock | * | ||
4.2
|
Articles 5, 6, 7, 10 and 13 of the Restated Certificate of Incorporation of Bank of Granite Corporation | * | ||
11.
|
Schedule of Computation of Net Income Per Share | ** | ||
31.1
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
31.2
|
Certification Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
32.1
|
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
32.2
|
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith |
* | Incorporated herein by reference. | |
** | The information required by this item is set forth under Item 1 of Part I, Note 3. |
30